Sunday, August 22, 2010

The amendments to the Civil Liability for Nuclear Damage Bill, 2010 proposed by the Government not only goes against the grain of the crucial recommendations of the Standing Committee, but also seeks to further dilute the provisions of the original bill to protect the interests of the foreign suppliers of nuclear equipment and domestic private players.

The new formulation of Clause 17 (b) suggested by the Government reads as follows:

"(b) the nuclear incident has resulted as a consequence of an act of supplier or his employees, done with the intent to cause nuclear damage, and such act includes supply of equipment or material with patent or latent defects or sub-standard services;"

This makes any liability on the part of the suppliers, for supplying defective or sub-standard equipment or material, contingent upon proof that it was "consequence of an act.done with the intent to cause nuclear damage.". With this amendment, it will become impossible to ascribe liability to the supplier.

This goes against the Standing Committee formulation of 17 (b), which does not require any such proof:

"(b) the nuclear incident has resulted as a consequence of latent or patent defect, supply of sub-standard material, defective equipment or services or from the gross negligence on the part of the supplier of the material, equipment or services."

Thus, in the name of removing the "and" in 17 (a), as suggested by the Standing Committee, the Government has rewritten 17 (b), effectively throwing the baby out with the bathwater. The formulation of 17 (b) proposed in the amendment is in fact worse than the provision contained in the original bill.

The dubious intent of the Government is further exposed by the addition of Clause 7 (1) proposed as an amendment, through which it seeks to "assume full liability for a nuclear installation not operated by it" (i.e. private nuclear installations) even as the Standing Committee had categorically recommended "that there will be no private operator of nuclear installation". This paves the way for a massive subsidization of the private players in nuclear power by the Government, as and when they are allowed to operate.

All this is clearly being done under pressure from the foreign nuclear suppliers and domestic corporate lobbies.

Siddharth Vardarajan of The Hindu gives the background to the Manmohan Singh Government's shenanigans:

Despite assuring the Left and the BJP that their concerns on the government’s proposed nuclear liability law had been fully addressed, the final version of the bill – as cleared by the Union Cabinet on Friday – protects foreign companies in the event of a nuclear accident caused by gross negligence or defective supplies on their part.

It does this by raising a legal barrier against damage claims that is so high it will be impossible to scale. The amended version of the bill says the suppliers of any defective equipment involved in an accident can be sued by the Indian operator of a nuclear facility only if the supply in question was made “with the intent to cause nuclear damage”.

In other words, the operator, who is wholly liable in the first instance for any damages resulting from an accident caused by that faulty equipment, can recover his money only if it is proved that the supplier intentionally caused the accident.

Clause 17(b) of the original draft allowed a right of recourse for the operator in the event of an accident resulting from “a wilful act” or “gross negligence” on the part of the supplier. As reported by The Hindu on March 8 and April 1, U.S. nuclear suppliers want this clause deleted as they feel it would expose them to litigation.

Critics in India, on the other hand, saw these conditions as too weak. The Standing Committee on Science & Technology, whose report on the bill was released earlier this week, felt the “vague” language of 17(b) offered suppliers an “escape route” and needed strengthening. “In case an incident takes place, it would be difficult to prove and establish the fact that it was a wilful act or gross negligence on the part of the supplier”, the report said.

“Hence there should be clear cut liability on the supplier of nuclear equipments/material in case they are found to be defective”. The committee also quoted the testimony of the Secretary (Legislative Department) to argue the use of the doctrine of mens rea, or criminal intent, though common in criminal and tax law, “is grossly inadequate and misplaced” in compensation cases.

Accordingly, the Standing Committee expanded the scope of the right of recourse in 17(b) to include nuclear incidents resulting “as a consequence of latent or patent defect, supply of sub-standard material, defective equipment or services” in addition to gross negligence.

The government’s first attempt by stealth to indemnify suppliers from legal action came in June, when it circulated amendments to the Standing Committee deleting 17(b) altogether. When the Opposition cried foul, it backed off, seeking instead to negate the clause by making it contingent on 17(a), which grants operators a right of recourse against suppliers only if expressly provided for in a contract.

Forced to backtrack there too, the government now appears to have hit upon the inclusion of intent as the best way of ensuring foreign suppliers never face legal action in the event of a nuclear accident.

Thus, the amended 17(b) gives the operator a right of recourse where “the nuclear incident has resulted as a consequence of an act of supplier or his employees, done with intent to cause nuclear damage, and such act includes supply of equipment or material with patent or latent defects or sub-standard services”.

Since accidents resulting from the intentional acts of a “person” (including corporate entities like a supplier) are already covered by 17(c) of the original draft, the government is now proposing to replace the word “person” in 17(c) with “individual” to avoid the charge of redundancy.

If the earlier subterfuge was to merge 17(b) with 17(a), the attempt now is merge it with 17(c). Either way, the Manmohan Singh government’s aim is the same: to produce legal language that would shield foreign suppliers from civil suits.

Friday, August 20, 2010

CAPITALISM, like the proverbial horse, kicks even when in decline. Even as the current crisis hit it, it gave an ideological kick by attributing the crisis to “sub-prime” lending; and so well-directed was its kick that the whole world ended up calling it the “sub-prime crisis”, argues Prabhat Patnaik.

The idea, bought even in progressive circles, was that in the euphoria of the boom that had preceded the crisis, financial institutions in the US had given loans even to sections of the population who were not really “credit-worthy”, i.e. who were poor and had few assets of their own.

They would normally not get loans from banks; they were not “prime borrowers”. They got loans only because the boom had lowered guards everywhere and banks had started underestimating risks. But if you give loans to people who are not “creditworthy”, who are not “true blue”, then you inevitably come to grief, which is what ultimately happened, precipitating the crisis.

Remarkably, the idea appealed not only to the Right but even to sections of the Left. Sections of the Left liked it because they read into this explanation a basic contradiction of the system: to keep the boom going the capitalist system needs to give more and more loans, and therefore to bring an ever larger number of people into the ambit of borrowing, so that the level of aggregate demand is kept suitably up. This necessarily means that “sub-prime” borrowers have to be brought in more and more for the sustenance of the boom, which therefore must eventually lead to a collapse.

The Right saw in it an opportunity to argue that the crisis arose because capitalism had become “too soft”: people who should not be touched by financial institutions with a barge-pole had actually been given huge loans. The problem therefore lay not with the system as such, since it normally would never do such silly things, but with an aberration it had suddenly got afflicted with.

Some even saw in this aberration a muddle-headed humaneness which the system had suddenly developed. And they used the crisis as an illustration of the fact that all such humaneness is fundamentally misplaced, that there is, as they had always maintained, no scope for sentiment in the harsh world of economics.

In India, apologists of neo-liberalism worked overtime to use the fact of the crisis itself to discredit policies of “social banking”, such as priority sector lending and differential interest rates, that the country had embarked on after bank nationalization. All such policies, they argued, saddle banks with the responsibility of lending to “sub-prime” borrowers, and hence put on their shoulders an unbearable burden of “non-performing assets”. This ultimately makes them unviable and in need of substantial doses of government assistance to survive, as had happened in the US and elsewhere.

The moral of the story therefore was that in countries like India the markets should be left to work in their own pitiless manner without having to accommodate sentimental hogwash like “social banking” and “financial inclusion”. Hence by a curious irony, a crisis precipitated in the advanced capitalist world by the free functioning of the markets was used in the Indian context to argue for an unleashing of the free functioning of the markets.

The basic argument about “sub-prime” lending causing the crisis however was a flawed one. The banks had given loans to the so-called “sub-prime borrowers” against the security of the houses they had bought with these loans. If the values of the houses collapsed then banks’ asset values collapsed relative to their liabilities, precipitating a financial crisis.

The cause of the crisis therefore lay not in the identity of the borrowers, the fact of their being “sub-prime”, but in the collapse of the asset values, which in turn was because asset markets in a capitalist economy are dominated by speculators whose behaviour produces asset-price bubbles that are prone to collapse.

Indeed when the banks were giving loans against houses to the so-called “sub-prime borrowers”, they too were essentially speculating in the asset markets, using the “sub-prime borrowers” only as instruments, or as mere intermediaries in the process.

To attribute the crisis to sub-prime lending therefore amounted to shifting attention from the immanent nature of the system, the fact that it is characterized by asset markets, which are intrinsically prone to being dominated by speculators whose behaviour produces asset-price bubbles that necessarily must collapse, to a mere aberration, a misjudgement on the part of the financial institutions that made them lend to the “wrong people”.

It was a deft ideological manoeuvre. The identity of the people who borrowed, whether they were in rags or drove limousines, was actually irrelevant to the cause of the crisis, but it was presented as the cause. The blame for the crisis was put falsely on “sub-prime lending”; and a fabrication, a complete myth, called the “sub-prime crisis” was sold to the world, quite successfully.

Let us for a moment imagine that no loans were made to the so-called “sub-prime” borrowers, and that all loans were made only to “prime borrowers” against the security of the houses that were purchased through such loans. True, “prime borrowers” might not have been interested in taking more loans than they already had, in order to purchase houses, and that “sub-prime” borrowers had to be brought in. But, let us, just for a moment, assume that all the loans that the banks had actually made were made to “prime borrowers” rather than “sub-prime borrowers”.

With the collapse in house prices, which had to happen sooner or later, the “prime borrowers” would have found their balance sheets going into the red, and so would the banks who gave them the loans. The borrowers would have been hard put to keep to their payments commitments, and the same denouement that unfolded with “sub-prime borrowers” would have unfolded with “prime borrowers”.

The fact that the latter owned other assets would not have made any difference; they would not have easily or voluntarily liquidated those assets to pay the banks for the housing loans (and, besides, those other asset prices too would have collapsed if the “prime borrowers” had tried to liquidate them). And if such forced liquidation was insisted upon for paying off housing debt, then there would have been prolonged court battles to prevent it; the crisis certainly would not have been averted.

Hence the real reason for the crisis lies in the collapse of the house price-bubble (which was bound to happen no matter what the identity of the borrowers), and not the identity of the borrowers themselves.

Of course it may be argued that with consumer credit the matter is entirely different, since such credit has been given to large sections of the population without any security. In other words, it may be argued that consumer credit to “sub-prime borrowers” is necessarily crisis-causing, in a sense that consumer credit to “prime borrowers” is not, since it is given without any collateral. But the consumer credit bubble has not yet busted; so it is idle to speculate on this matter.

The fact remains that with regard to the bubble that has actually busted, namely the housing bubble, the identity of the borrowers, whether they are prime borrowers or sub-prime borrowers makes little difference.

To say this is not necessarily to deny that the sustenance of boom under capitalism may require bringing more and more people under the ambit of borrowing, including the so-called “sub-prime” borrowers who normally do not have access to credit. But this is not the cause of the crisis; the bringing in of “sub-prime” borrowers, the widening of the circle of borrowers, is merely the mechanism through which speculation may get sustained.

It may determine the size of the “bubble”, but the real cause of the crisis lies in these “bubbles” themselves, i.e. in the fundamental fact that in a modern capitalist economy, where fiscal deficits are sought to be restricted, booms are necessarily “bubbles-led” or at least “bubbles-sustained”; and the inevitable collapse of these “bubbles” necessarily produces crises.

Or putting it differently, if “sub-prime” lending had not happened, then the crisis would have occurred even earlier than it did, i.e. the bubble would have collapsed even earlier. This would of course have limited the size of the collapse relative to the top of the boom, since the bubble would have burst before it became too big; but by the same token it would also have limited the size of the boom itself that preceded the collapse, so that the unemployment rate, experienced with the crisis, would not have differed much between the two situations.

A modern capitalist economy is characterized by highly-developed and highly-complex asset markets, where it is not only the physical assets themselves, but, above all, financial assets, which represent claims on physical assets, that are bought and sold. Since the carrying costs of these financial assets are extremely low (rats do not eat them up as they eat up foodgrains for instance, and they do not need godowns for storage and for protection from the elements), they are particularly prone to speculation.

Their markets tend to be dominated by speculators who buy assets not “for keeps” but for selling at the opportune moment to realize capital gains. The prices of these financial assets therefore are determined largely by the behaviour of speculators. When there is a rise in their prices for whatever reason, speculators often rush in expecting a further rise and this pushes up prices even further. This process may go on for sometime, creating a “bubble”. But when, for whatever reason, the price rise comes to a halt, speculators start running away from this asset like rats deserting a sinking ship and the “bubble” collapses.

The real point however is this: the amount of the physical asset that is produced depends upon the price of the claims upon it, i.e. of the financial assets that represent claims upon this physical asset. If the price of these claims is high, then more of such physical assets are produced, and if the price is low then less. But while the price of these claims is determined by the behaviour of the speculators, the output and employment in the real economy is determined by the amount of physical assets that are produced.

Hence in a modern capitalist economy, it is the caprices of a bunch of speculators that determines the real living conditions of millions of people, their employment and incomes. When speculators are bidding up the prices of assets (or claims upon assets) employment and output start rising and we have a boom. When speculators leave assets like rats leaving a sinking ship and wish only to hold money (and in extreme cases, when confidence in banks gets impaired, only currency), we have a crisis.

John Maynard Keynes, acutely aware of the irrationality of this system that made the lives of millions of people dependent upon the caprices of a bunch of speculators, and yet extremely keen to prevent its transcendence by socialism, sought to alter this state of affairs by advocating “socialization of investment”. This would mean that how much of physical assets were produced depended not upon the whims of speculators but upon the decisions of the State, which made these decisions with the objective of keeping the economy close to full employment.

The Keynesian remedy was tried out for nearly two decades after the second world war; and the unemployment rate in the advanced capitalist countries was indeed kept at levels that were extremely low by the historical standards of capitalism. But with the ascendancy of international finance capital, and the consequent transformation in the nature of the nation-State, whose interventions now are meant exclusively for promoting the interests of finance capital, Keynesian “demand management” recedes to the background; and we are back to a regime of booms and busts associated with the formation and collapse of “bubbles”.

The current crisis is not caused by any aberration on the part of financial institutions; it is immanent to a regime of finance capital.

THE rally held by the TMC – TrinamulMaoist Combine – at Lalgarh on August 9 reconfirms, if ever such a reconfirmation was required, that the Trinamul Congress and the Maoists have, indeed, been political collaborators in creating mayhem and anarchy in certain areas of West Bengal.

The murderous assaults by this combine has already martyred 255 leaders of the CPI(M).Most, if not all of these, belong to the poorestof the exploited classes and tribals, whose interests, ironically, the Maoists claim to champion drawing the blind romantic adulation by some `intellectuals’ and `social activists’.

An embarrassed and cornered Manmohan Singh-led government tried to duck, unsuccessfully, the issue of one of its cabinet members being caught red handed in the open political collaboration with the Maoists.They took refuge behind the argument that they shall return to both the houses of parliament after having “ascertained the facts”.

Ironically, the very next day, August 11, the minister of state for home affairs stood up in reply to a starred question in the Rajya Sabha on the involvement of Maoists in railway accidents stating: “Investigation conducted reveals that Police Santras Birodhi Janasadharaner Committee (PSBJC/PCPA), a frontal organisation of Maoists, was involved in damaging the railway track, thereby causing the accident.

The CBI has arrested 12 persons so far in this case”. It is the very same minister for railways, whose primary job, under oath of the constitution is to protect the life of passengers traveling on the Indian railways and to improve its safety standards, who is openly collaborating with the Maoists.

She has openly advocated the withdrawal of the operations of the security forces against the Maoist violence.She, in fact, has gone to the extent of asserting that Maoist leader Azad was `murdered’ and not killed in an encounter as claimed by the security forces.

The Trinamul-Maoist nexus became abundantly clear when, according to media reports: “Maoist politburo member Koteswar Rao alias Kishanji once again batted for Trinamool Congress chief Mamata Banerjee on Azad issue.

“There is no doubt that our politburo member and central committee spokesperson Charakuri Rajkumar alias Azad was treacherously killed by the members of Andhra Pradesh police special intelligence branch in a fake encounter. Mamata Banerjee spoke the truth and there is no reason behind the furore over the issue in parliament”. This comes from a Maoist leader whose party openly rejects parliamentary democracy and calls for a `people’s war’ against the Indian State!

Unable to defendthe role of an important ally and cabinet colleague, the UPA-II government through its minister for home affairs, P Chidambaram, stated in the Rajya Sabha, “No one should support the Maoists and the government will certainly not encourage anybody who does so.”

However, the UPA-II government, in a crass display of political opportunism, requiring the numbers of TMC MPs in the Lok Sabha for the survival of this government, is tolerating such `support to the Maoists’ making a mockery of its commitment to safeguard India’s internal security.

Indeed, there is an irreconcilable contradiction that continues to plague the UPA-II government.The prime minister has repeatedly asserted that Maoist violence constitutes “the gravest threat to India’s internal security”.Yet, its own cabinet colleague, under the leadership of this very prime minister, openly collaborates with Maoist violence and defends the attempted subversion of parliamentary democracy.

The composition of the people gathered in Lalgarh clearly exposes the reasons for organising this meeting.The overwhelming bulk of the people were brought by huge number of transportation vehicles from outside of Lalgarh.The fact that the people of that area stayed away in large numbers shows the growing political isolation of the Trinamul Congress combine.It is precisely in order to strike terror and browbeat the local population into supporting them that this rally was organised.

Clearly, the Trinamul Congress has exposed itself to stooping to the lowest of levels in its quest to gain in the forthcoming assembly elections in West Bengal.In the bargain, neither the safeguarding of innocent life nor strengthening the unity and integrity of India are of any concern.

If the UPA-II government and prime minister Manmohan Singh continue to turn a deaf ear to this threat, then India will have to pay a heavy price.Brazen political opportunism to continue to remain in office cannot be allowed to sacrifice the interests of India’s unity, integrity and internal security.